Micro-insurance trips on claims

Finance minister P Chidambaram’s Budget proposal to allow business correspondents to sell micro-insurance products in rural India is well-intentioned, as it would get more uninsured people on board.

But will it really help meet the goal of financial inclusion?

Micro-insurance covers are typically under Rs.50,000 and sold only to individuals with limited income. The most common products are health, life, crop and livestock insurance.

Going by experts, the challenge in these lies not in selling the policies, but in settling the claims.

Micro-insurance products are designed in a way to please the regulator and many such products are not serving the purpose. It’s evident that many of these products have zero claims ratio, said J Hari Narayan, former chairman of Insurance Regulatory and Development Authority (Irda).

Zero claims simply show that the benefits are not reaching people effectively, he said.

It’s mandatory for all insurers to scoop up 8-10% of the premium pie from Tier II and Tier III cities.

But insurers are not particularly warm to selling micro-insurance products because these are designed in such a way that premium rates are 15-20% subsidised in comparison with regular policies.

Also, there is low awareness on the structure of the products, claims procedure and exclusions. So, insurers who sell these out of regulatory compulsions end up pocketing premiums without having to settle claims.

These people don’t know how to settle the claims. Most of them are daily labourers and can’t afford to spend 2-3 weeks following up with insurance companies, said Ram Sangapure, general manager, retail banking, Central Bank of India.

Extending basic banking facilities is a less cumbersome affair where FINO PayTech, a banking correspondent, has achieved considerable success.


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